Every TV police drama has one-a lab full of expensive equipment
to analyze mysterious powders or fibers from a crime scene. Looks
high-tech, right? Not compared to a new device developed by
DeltaNu of
Laramie, Wyoming. The company's new hand-held device, called
Inspector Raman, sniffs out substances from cocaine to anthrax
faster than you can say CSI: Miami.

How did a tiny company in Wyoming develop this breakthrough
technology? Dr. Keith Carron, a chemistry professor and co-founder
of DeltaNu, says the R&D funds came from the government's
Small Business Innovative Research (SBIR) grants. Along the way,
DeltaNu used these same grants to develop a string of other lab
machines now sold to police departments, universities and other
customers worldwide.

In addition to sparking nearly a million dollars in product
sales, these grants have turned DeltaNu into a multimillion-dollar
company. "All in all, we've received over $3.7 million [in
grants] over six years," says Carron, 46.

"The SBIR is a combination of grants and contracts. It all
equates to the same thing: funding for the small-business
[person]," says Rick Shindell, president of Zyn Systems in
Sequim, Washington, which helps both entrepreneurs and government
agencies get the most out of SBIR programs.

"There are 11 agencies involved, none of which take
unsolicited proposals," says Shindell. "You have to
respond to a particular open solicitation." But don't let
that discourage you. What Shindell calls a solicitation is really
just a statement of need-a problem that the government has
identified and for which it is seeking a solution.

The largest SBIR granting agency, the Department of Defense
(DOD), often posts very specific needs, such as developing a laser
guidance system for a fighter plane. On the other hand, the
National Institutes of Health (NIH) issues grants for very general
research. "They may simply be looking for a broad topic, like
new ways to detect breast cancer-that's very different than the
DOD," says Shindell.

Either way, SBIR programs are split into two phases. According
to Shindell, Phase I is generally to study the feasibility of a new
technology or idea, and the award amounts are limited to $75,000 to
$100,000. Phase II grants are meant to encourage commercialization
of a particular technology and can go up to $750,000. The program
has grown so large since its inception in 1982 that there are now
various state and federal programs providing pre- and post-award
opportunities. So-called "Phase Zero" grants, for
example, are offered by some state governments to pay for
professional SBIR grant-writing assistance.

Planning to Succeed

To get started on the SBIR process, you should have a clear
understanding of who you are and where you are going, advises
Shindell. "Entrepreneurs need to know what they want their
companies to be," he says. That generally means identifying
the best industries and government agencies for your company's
products or technologies, as well as choosing whether your primary
focus will be on scientific research or commercial product
development.

Impact
Technologies LLC, an equipment monitoring system and
engineering software development firm in State College,
Pennsylvania, is dedicated almost exclusively to research.
"SBIRs now account for about 80 percent of our revenue,"
says Impact Technologies' partner Carl S. Byington, who's
also founder of the State College office. "We have over 15
Phase II programs, and at least 10 Phase I [programs] going on
right now."

Such intense research has helped Impact grow rapidly since its
inception in 1999. But relying too heavily on government
programs-especially research grants-may not be a safe long-term
strategy, says Shindell. Companies that subsist solely on SBIR
grants are known as "prop mills" for the large number of
SBIR proposals that they submit. "That's what I would
consider the dark side," says Shindell. "And, indeed,
there has been talk of making companies that are subsisting on SBIR
grants ineligible [for future awards]."

To temper this risk, Impact Technologies is moving away from
pure research and toward more commercialization efforts. Byington,
38, says the company is headed for a transition. "What we
envision for the company is 40 percent of our revenue in product
sales in the next five years at least," he says. With more
than 50 employees and 2004 revenue (including grant awards) of $7.5
million, Impact Technologies will have to grow product sales
quickly if it is to diminish its reliance on grants.

Fortunately, the DOD-Impact's largest SBIR source-has a good
track record of extending purchase orders to companies that have
completed a Phase II SBIR grant program. "Last year, we
received a $25 million 'indefinite quantify, indefinite
delivery' contract from the Naval Air Systems Command,"
says Byington. "That means that any government agency can buy
our technology directly. So if we develop something for the Joint
Strike Fighter, the F-18 team can come along and write us a task
order directly, without going out on bid."

A Passion for Products

Carron at DeltaNu has taken a radically different course through
the SBIR process. Although he, too, relied heavily on the grants
for early financing, the R&D work the grants paid for was
always product-oriented.

DeltaNu's Inspector Raman product was developed with a Phase
II SBIR grant from the NIH. The grant paid for research on the
broad topic of how to detect illicit drugs. "In the process,
we realized that even our bench-top model was too big," says
Carron. "We needed something to be carried by police in the
field."

The end result, a wireless, battery-operated system, has uses
far beyond what the NIH ever imagined. The device has applications
in law enforcement, hazardous materials management and homeland
security, to name just a few. "It can be used to look for
explosives, hazardous materials, weapons of mass destruction, or
even to analyze artwork," says Carron. "It's
nondestructive, so you could analyze a rare piece of art and never
even have to take it off the wall."

With such broad applications, Carron estimates that Inspector
Raman will generate revenue of $2 million or more per year for the
company. Combined with other product sales, that's a nice
return on the company's SBIR awards.

Street Cred

Whether you end up developing a blockbuster product or not,
completing an SBIR grant means more than just money. Says Shindell,
"Once you have become an SBIR award winner, you've gained
an incredible amount of credibility for your company."